Stock Market Wealth and Worker Output
58 Pages Posted: 27 Aug 2020
Date Written: July 19, 2020
This paper uses individual-level data linking stock investments to work performance to examine how changes in stock market wealth affect worker output. Exploiting large return variations over time and across investors, we document a 10% increase in monthly stock investment returns is associated with a decrease of 3.9% in the same investor’s next-month work output. The negative output response is not driven by concurrent economic conditions, pronounced when focusing on more idiosyncratic stock investment returns, and moreover is unexplained by investor-specific liquidity needs. Consistent with the wealth-effect interpretation, the effect is stronger for higher-income workers. In the negative-return domain, interestingly, a decline in stock investment returns is followed by lower output, especially for male, younger, less educated, and lower-income workers. Overall, our results highlight a novel channel of transmitting stock market fluctuation to the real economy through labor supply.
Keywords: Stock Investment Return, Stock Market Wealth, Worker Output, Work Performance, Labor Supply, Wealth Effect, Household Finance
JEL Classification: D14, G12, G51, J22, J31
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